The senior United Nations official in the Middle East has said that the Israeli blockade of the West Bank and Gaza Strip during the Palestinian uprising has had a disastrous effect on the Palestinian economy.

Terje Larsen - the UN Special Co-ordinator for the Middle East - said that direct losses in Palestinian earnings in the first nine months of the conflict could be as high as $2.5 billion.

Mr Larsen said the blockades had led to a huge rise in Palestinian unemployment and created a financial crisis for the Palestinian Authority.

The Israeli blockade has barred tens of thousands of Palestinian workers from commuting to Israel to work.

Israel says the blockade is necessary to prevent attacks against Israelis, but the Palestinians call the measure collective punishment.